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Parma Bains
Technology plays an increasingly important role in financial services. With the pace of technological inno-vation moving ever faster, the role new technology plays in the provision of financial services is becoming increasingly fundamental. New technology can generate efficiencies for firms, lowering costs that can be passed on to end users. It can increase access to financial services and products for consumers, particularly the most vulnerable; however, new technology can also create new risks and unintended consequences that can harm financial stability, consumer protection, and market integrity. This primer is designed for financial supervisors at central banks, regulatory authorities, and government departments. It adds to existing literature by summarizing key aspects of popular consensus mechanisms at a high level, with a specific focus on how such mechanisms may impact the mandates of supervisors and policymakers when deployed in financial services markets. It could also help inform IMF staff on policy development and technical assistance related to crypto assets, stablecoins, and blockchains.
Parma Bains

data in a chain of blocks. Each block contains data that are verified, validated, and then “chained” to the next block. Blockchain is a subset of DLT, and the Bitcoin Blockchain is a specific form of a blockchain. Consensus mechanisms : Consensus in distributed systems is ensuring that a state, value, or piece of information is correct and agreed on by most nodes. A consensus mechanism guarantees this effort is carried out fairly and independently of any interested party, or in the case of private permissioned networks, to achieve other objectives desired by the

Parma Bains

Title Page FINTECH NOTE Blockchain Consensus Mechanisms: A Primer For Supervisors Prepared by Parma Bains January 2022 Copyright Page ©2022 International Monetary Fund Blockchain Consensus Mechanisms: A Primer for Supervisors Note 2022/003 Prepared by Parma Bains Names: Bains, Parma, author. | International Monetary Fund, publisher. Title: Blockchain consensus mechanisms : a primer for supervisors / prepared by Parma Bains. Other titles: A primer for supervisors. | FinTech notes (International Monetary Fund). Description

Blockchain Consensus Mechanisms: A Primer for Supervisors VI. REFERENCES Bains, Parma, Nobuyasu Sugimoto, and Christopher Wilson. 2022. “BigTech in Financial Services― Regulatory Approaches and Architecture.” IMF Fintech Note, Washington, DC. https://0-www-imf-org.library.svsu.edu/ en/Publications/fintech-notes/Issues/2022/01/22/BigTech-in-Financial-Services-498089. Basel Committee on Banking Supervision. 2021. Principles for Operational Resilience. March. https://www. bis.org/bcbs/publ/d516.pdf. Bowman, Mic, Debajyoti Das, Avradip Mandal, and Hart Montgomery. 2021. On Elapsed Time

Parma Bains

–The Missing White Paper . Steemit . https://steemit.com/dpos/@dantheman/dpos-consensus-algorithm-this-missing-white-paper . Lashkari , Bahareh , and Petr Musilek . A Comprehensive Review of Blockchain Consensus Mechanisms . https://www.researchgate.net/publication/350031088_A_Comprehensive_Review_of_Blockchain_Consensus_Mechanisms . Li , Chenxing , Li Peilin , Dong Zhou , Wei Xu , Fan Long , and Andrew Yao . 2021 . Scaling Nakamoto Consensus to Thousands of Transactions per Second . https://arxiv.org/pdf/1805.03870.pdf

Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer

Operation of Automated Teller Machines .” Journal of Emerging Trends in Engineering and Applied Sciences 5 ( 8 ), 153 – 158 . Platt , Moritz , Johannes Sedlmeir , Daniel Platt , Jiahua Xu , Paolo Tasca , Nikhil Vadgama , and Juan Ignacio Ibanez . 2021 . “ Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof-of-Work .” UCL Centre for Blockchain Technologies. Discussion Paper Series . https://arxiv.org/pdf/2109.03667.pdf Rogoff , Kenneth . 2017 . The Curse of Cash . Princeton University Press . Rybarczyk

Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer
Whether in crypto assets or in CBDCs, design choices can make an important difference to the energy consumption of digital currencies. This paper establishes the main components and technological options that determine the energy profile of digital currencies. It draws on academic and industry estimates to compare digital currencies to each other and to existing payment systems and derives implications for the design of environmentally friendly CBDCs. For distributed ledger technologies, the key factors affecting energy consumption are the ability to control participation and the consensus algorithm. While crypto assets like Bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems.
Cristina Cuervo, Jennifer Long, and Richard Stobo

Emerging Markets – Easy Come, Easy Go , Monetary and Capital Markets Department Global Financial Stability Notes No. 2021/05 . Washington, DC , December . International Monetary Fund (IMF) . 2021f . Strengthening the Climate Information Architecture . Staff Climate Note 2021/003 . Washington, DC , September International Monetary Fund (IMF) . 2022a . Keeping Pace with Change: Fintech and the Evolution of Commercial Law . FinTech Note No. 22/01 . Washington, DC , January . International Monetary Fund (IMF) . 2022b . Blockchain Consensus Mechanisms

Cristina Cuervo, Jennifer Long, and Richard Stobo
This paper discusses progress on post-global financial crisis (GFC) reforms and the emerging challenges in the area of capital markets regulation and supervision, drawing on the analysis and insights from the IMF’s Financial Sector Assessment Program (FSAP). FSAP analyses sheds light on the implementation of post-GFC reforms to strengthen prudential and conduct supervision of capital markets and highlights new regulatory and supervisory challenges arising from several factors such as the growth of bond markets, benchmark transition, digitalization, and climate change. Key takeaways regarding implementation of post-GFC reform include significant progress with respect to oversight of market intermediaries and infrastructures and a case for further regulatory and supervisory action to address vulnerabilities arising from the high and rising interconnectedness of the asset management sector with the global economy, especially to foster stronger liquidity risk management. Emerging priority areas underscore the importance of ensuring the adequacy of issuer disclosures and quality of auditing; of examining and appropriately calibrating the regulatory perimeter in light of market developments; and of proactively safeguarding the operational independence of supervisory authorities and adequacy of their resources for implementation of regulatory frameworks that are fit-for-purpose in light of market developments and evolution.